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US Targets China With Proposed Trade Taxes

by Leroy Baker, Tax-News.com, New York

06 October 2011


The United States Senate Finance Committee Ranking Member, Orrin Hatch (R - Utah), has put forward an amendment to the bill currently being discussed that would unilaterally address the so-called continuing undervaluation of China’s currency by providing for the imposition of countervailing import duties.

As the Senate began its debate on the Currency Exchange Rate Oversight Reform Act, which has been made possible by its winning of a previous procedural vote, Hatch has outlined the need to address, what he called, the “currency manipulation that is hurting American businesses”, but said that the US government should focus more broadly on other trade imbalances and enter into multinational negotiations on the issue.

The Act would, after an analysis of those currencies which are “fundamentally misaligned”, allow countervailing import duties to be imposed as an offset to the calculated amount of currency undervaluation. Countervailing duties would be available to any US industry that could demonstrate that it has been injured by imports from the country with the undervalued currency.

The proposed legislation appears to hang its validity on World Trade Organization (WTO) rules that allow for the application of countervailing duties to offset or neutralize export subsidies. However, to date, currency manipulation has not been found to be an export subsidy, for the reason that non-exporters (for example, US tourists in China) benefit from the undervalued currency as well. However, it has been pointed out previously that WTO appeal rulings have decided that a subsidy can be considered an export subsidy even if it is available in some circumstances that do not involve export.

While the legislation does not name China, it would certainly apply to the current level of the Chinese renminbi (RMB), and its passage would raise the spectre of Chinese retaliation against US exports to China.

Shen Danyang, a spokesman for the Chinese Ministry of Commerce, has already commented that the US Senate would be “in violation of international rules” if it proceeded with the bill, that China has taken active measures to expand US imports, and that the RMB exchange rate was not the cause of any Sino-US trade imbalances. The Foreign Ministry added that China is “firmly opposed” to the Act, which would be a serious breach of WTO rules and interfere with normal economic and trade relations.

In fact, recognizing the danger that “the bill is too focused on unilateral remedial actions,” Hatch fears that “the bill will have only a marginal effect on China’s practices, while at the same time potentially targeting many US exporters for trade retaliation by China.”

His tabled amendment to the Act would mandate “negotiations with like-minded trading partners to counter the effect of China’s currency practices and to increase multilateral pressure on China and other currency manipulators to modify their practices”.

“It does so,” he confirmed, “by directing the Administration to negotiate within the International Monetary Fund (IMF) and the WTO to develop effective rules and remedies to mitigate the adverse trade and economic effects of fundamentally misaligned currencies designated for priority action. If the WTO and IMF negotiations do not produce results within 90 days, the amendment directs the Administration to negotiate new plurilateral agreements to achieve these same objectives.”

“The amendment maintains pressure upon the Administration to act by requiring a report to Congress on their progress within 180 days, including whether additional authority is needed from Congress,” he continued. “The amendment also strikes provisions in (the Act) which required increased duties on imports, bans on federal procurement and mandatory opposition to multilateral loans.”

“Finally, he concluded, “the amendment takes advantage of on-going negotiations such as the Trans Pacific Partnership by establishing a new priority negotiating objective for ongoing trade negotiations (and future trade negotiations) to prohibit parties to the agreement from fundamentally misaligning their currencies, and to work together to mitigate the adverse trade and economic effects of non-party priority action currencies.”

TAGS: tax | economics | business | law | tariffs | World Trade Organisation (WTO) | International Monetary Fund (IMF) | China | legislation | trade disputes | United States | import duty | currency | trade

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